British Columbia explores possible tax on future LNG exports

Vancouver (Platts)--18 Feb 2013 1131 am EST/1631 GMT

The British Columbia government has opened talks with Canada's natural
gas industry about a possible new tax on LNG exports, which Premier Christy
Clark estimates could generate C$1 trillion in cumulative GDP over the next
30 years.

Counting on at least five operating LNG projects from the 10 candidates
currently in various stages of development, the province believes new taxes
could "maximize the benefits to British Columbians" without affecting its
competitive edge, Clark said in releasing new LNG and natural gas strategies
last week.

Noting that Australia's natural gas tax and royalty regime was "up to
one-third higher" than British Columbia's, she said the export of "our
abundant supply of natural gas presents an opportunity for prosperity unlike
anything we have ever seen."

The government reports estimated LNG exports could attract C$20 billion
in investment over the next seven years, and contribute C$130 billion to
C$160 billion in revenues over 30 years, assuming two larger and three
smaller-sized plants are brought on stream.

The Clark government, which is facing stiff opposition in its bid to
retain power in a May 14 election, is counting on directing a minimum C$100
billion of LNG-related revenues into a newly-created B.C. Prosperity Fund
that could eliminate the province's deficit, currently at C$58 billion, by
2028.

But analysts and industry leaders have cautioned the government against
making financial assumptions if they are based on higher taxes and royalties.
Gary Leach, president of the Explorers and Producers Association of
Canada, said February 15 that any revenue projections stretched over several
decades for any resource commodity would be highly speculative, given the
uncertainties of future commodity prices, global economic growth -- especially
in Asia -- and competing energy supplies.

He said the Clark government needed to determine whether British
Columbia's LNG proponents would negotiate the contract prices with Asian
buyers that they need to justify going ahead with their plans.

Leach noted that Chevron, the new operator of the Kitimat LNG project,
has insisted that venture needs oil-linked prices if it is to proceed.

The Canadian Association of Petroleum Producers said any move to impose
new taxes would cause the industry to "reflect on its business assumptions"
in a globally-competitive business where capital investments are fluid.

Peter Doig, a director at investment dealer GMP Securities who has
studied the potential for Canadian LNG exports, said British Columbia was on
the brink of "biting the hand that's going to feed it" after years of
stimulating natural gas exploration and development.

He said the economics of the government's targeted LNG goals, including
two large and three smaller-sized operating LNG projects by 2020, were open
to question.

"If you throw in higher royalty rates, that's a nail in the coffin," he
said.

Steven Paget, an analyst with FirstEnergy Capital, said British Columbia
was not guaranteed exclusive rights to provide all of the gas feedstock for
LNG operations, suggesting that LNG operators would likely also draw on gas
from Alberta.

The government said its LNG calculations were based on forecasts by
independent analysts along with information it has gathered from global
natural gas and LNG forecasters.

Energy Minister Rich Coleman told reporters he was confident that by
2020 British Columbia would have "very much matured into the LNG marketplace."

"The message really is that B.C. has an opportunity to participate in a
new LNG business that could create lasting benefits for many years," he said.
"If we don't go with a vision and pursue this opportunity, we'll be letting
British Columbians down."